Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 19.A, Problem 5QP
Determining Optimal Cash Balances The All Day Company is currently holding $690,000 in cash. It projects that over the next year its
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Chapter 19 Solutions
Fundamentals of Corporate Finance
Ch. 19.1 - What is the transaction motive, and how does it...Ch. 19.1 - What is the cost to the firm of holding excess...Ch. 19.2 - Which would a firm be most interested in reducing,...Ch. 19.2 - Prob. 19.2BCQCh. 19.2 - Prob. 19.2CCQCh. 19.3 - Prob. 19.3ACQCh. 19.3 - Prob. 19.3BCQCh. 19.4 - Prob. 19.4ACQCh. 19.4 - What is a zero-balance account? What is the...Ch. 19.5 - What are some reasons why firms find themselves...
Ch. 19.5 - Prob. 19.5BCQCh. 19.5 - Why are money market preferred stocks an...Ch. 19.A - Prob. 1ACQCh. 19.A - Prob. 2BCQCh. 19.A - Describe how the MillerOrr model works.Ch. 19.A - Changes in Target Cash Balances Indicate the...Ch. 19.A - Using the BAT Model Given the following...Ch. 19.A - Prob. 3QPCh. 19.A - Prob. 4QPCh. 19.A - Determining Optimal Cash Balances The All Day...Ch. 19.A - Prob. 6QPCh. 19.A - Prob. 7QPCh. 19.A - Interpreting MillerOrr Based on the MillerOrr...Ch. 19.A - Prob. 9QPCh. 19.A - Using BAT Rise Against Corporation has determined...Ch. 19 - Prob. 19.1CTFCh. 19 - Prob. 19.2CTFCh. 19 - Prob. 19.3CTFCh. 19 - Prob. 1CRCTCh. 19 - Prob. 2CRCTCh. 19 - Prob. 3CRCTCh. 19 - Prob. 4CRCTCh. 19 - Prob. 5CRCTCh. 19 - Prob. 6CRCTCh. 19 - Collection and Disbursement Floats [LO1] Which...Ch. 19 - Prob. 8CRCTCh. 19 - Prob. 9CRCTCh. 19 - Prob. 10CRCTCh. 19 - Prob. 11CRCTCh. 19 - Prob. 12CRCTCh. 19 - Prob. 13CRCTCh. 19 - Prob. 1QPCh. 19 - Calculating Net Float [LO1] Each business day, on...Ch. 19 - Prob. 3QPCh. 19 - Float and Weighted Average Delay [LO1] Your...Ch. 19 - NPV and Collection Time [LO2] Your firm has an...Ch. 19 - Using Weighted Average Delay [LO1] A mail-order...Ch. 19 - Prob. 7QPCh. 19 - Lockboxes and Collections [LO2] It takes Cookie...Ch. 19 - Prob. 9QPCh. 19 - Prob. 10QPCh. 19 - Prob. 11QPCh. 19 - Calculating Transactions Required [LO2] Cow Chips,...Ch. 19 - Prob. 1MCh. 19 - Prob. 2MCh. 19 - Prob. 3M
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- Optimal Cash Transfer Barenbaum Industries projects that cash outlays of 4.5 million will occur uniformly throughout the year. Barenbaum plans to meet its cash requirements by periodically selling marketable securities from its portfolio. The firms marketable securities are invested to earn 12%, and the cost per transaction of converting securities to cash is 27. a. Use the Baumol model to determine the optimal transaction size for transfers from marketable securities to cash. b. What will be Barenbaums average cash balance? c. How many transfers per year will be required? d. What will be Barenbaums total annual cost of maintaining cash balances? What would the total cost be if the company maintained an average cash balance of 50,000 or of 0 (it deposits funds daily to meet cash requirements)?arrow_forwardStrickler Technology is considering changes in its working capital policies to improve its cash flow cycle. Stricklers sales last year were 3,250,000 (all on credit), and its net profit margin was 7%. Its inventory turnover was 6.0 times during the year, and its DSO was 41 days. Its annual cost of goods sold was 1,800,000. The firm had fixed assets totaling 535,000. Stricklers payables deferral period is 45 days. a. Calculate Stricklers cash conversion cycle. b. Assuming Strickler holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. c. Suppose Stricklers managers believe the annual inventory turnover can be raised to 9 times without affecting sale or profit margins. What would Stricklers cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 9 for the year?arrow_forwardBroussard Skateboard’s sales are expected to increase by 15% from $8 million in 2018 to $9.2 million in 2019. Its assets totaled $5 million at the end of 2018. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2018, current liabilities were $1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 6%, and the forecasted payout ratio is 40%. Use the AFN equation to forecast Broussard’s additional funds needed for the coming year.arrow_forward
- Long-Term Financing Needed At year-end 2018, Wallace Landscapings total assets were 2.17 million, and its accounts payable were 560,000. Sales, which in 2018 were 3.5 million, are expected to increase by 35% in 2019. Total assets and accounts payable are proportional to sales, and that relationship will be maintained. Wallace typically uses no current liabilities other than accounts payable. Common stock amounted to 625,000 in 2018, and retained earnings were 395,000. Wallace has arranged to sell 195,000 of new common stock in 2019 to meet some of its financing needs. The remainder of its financing needs will be met by issuing new long-term debt at the end of 2019. (Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its net profit margin on sales is 5%, and 45% of earnings will be paid out as dividends. a. What were Wallaces total long-term debt and total liabilities in 2018? b. How much new long-term debt financing will be needed in 2019? [Hint: AFN New stock = New long-term debt.)arrow_forwardThe following four suggestions have been made to improve the company’s cash position. Evaluate the effect on cash flow for each of the four suggestions. After evaluating each suggestion, enter the projected cash balances in the spaces provided. Consider each suggestion separately. Reset cells to their initial values after each new suggestion. Seek agreement with suppliers to extend the credit period to 30 days. This would mean that all current monthly purchases would be paid for in the following month. Raise the unit price from $28 to $30. A price increase will reduce unit sales by 10% each month. Unit purchases will also be reduced by 10%. Put the company’s two salespeople on straight commission. This would reduce fixed marketing and administrative costs to $1,500 per month and raise variable marketing and administrative costs to $7 per unit. Increase the cash discount from 5% to 10%. It is anticipated that this would increase the percentage of customers paying within the discount period to 85%, and those paying the month after the discount period would drop to 8%. Five percent would pay in the following month and 2% would still be uncollectible. What are your recommendations for Sweet Pleasures, Inc.? Consider potential impact on profits as well as cash balances.arrow_forward
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